At a seminar Koen Lenaerts, President of the Court of Justice of the European Union, spoke about the Court’s landmark Opinion on investor-to-state dispute settlement (ISDS) in the EU-Canada trade agreement CETA.
Most interesting I find what he didn’t speak about. After the Opinion, law professors had pointed out the Court suggests that the EU and EU countries can refuse to pay ISDS damages awards. But Lenaerts did not speak about that.
Lenaerts highlights paragraphs 148 to 151 of the Opinion:
“It is against that background that paragraphs 148 to 151 of the Opinion establish the following limit: the envisaged tribunals should not call into question the level of protection of any public interest reflected in measures limiting a Canadian investor’s freedom to conduct business, for example the precautionary principle in environmental and health matters or the protection of public order. If such a limitation did not exist, there would be a clear risk that the EU institutions might have to abandon that level of protection in order to avoid being repeatedly compelled to pay damages to claimant investors. In the case of measures of general application, that would undermine the democratic legislative process leading to their adoption and therefore compromise the capacity of political institutions of the EU to exercise their powers in accordance with the EU constitutional framework. It is moreover for EU Courts alone to review the compatibility of the level of protection of public interests established by EU legislation with EU primary law, including the proportionality principle set out in Article
5 TEU.
In this respect too, the Court nevertheless concluded that the CETA contains sufficient guarantees. A number of its provisions protect each Party’s right to regulate. Read together with the Joint Interpretative Instrument, they were construed as precluding the CETA tribunals from calling into question the level of protection of public interests determined by the Union following a democratic process.” (emphasis added, footnotes omitted)
Indeed very interesting, but I stumble over “precluding”, emphasised above. The CETA tribunals take the final decision. What if they do call into question the level of protection of public interests determined by the Union following a democratic process? The CETA text can not preclude this, in practice. Where would the actual precluding come from? Paragraphs 152 and 153 of the Opinion come to the rescue. Para 153:
“It follows from the foregoing that, in those circumstances, the CETA Tribunal has no jurisdiction to declare incompatible with the CETA the level of protection of a public interest established by the EU measures specified in paragraph 152 of the present Opinion and, on that basis, to order the Union to pay damages.”
Hence, as law professors pointed out, if the EU or EU countries refuse to pay ISDS damages awards, the investors will have to sue, in a normal court. The core decision may end up at the EU Court of Justice. It would be the EU Court itself that will preclude the execution of the damages awards. We could call this “extra-CETA”. CETA itself does not provide sufficient protection for the level of protection of public interests determined by the Union following a democratic process.
However, if the EU can decide to not pay ISDS damages awards, “certain third States in which the separation of powers and the rule of law may not apply consistently and reliably in practice” (using Lenaerts’ formulation) may do the same. The Court’s opinion undermines investor protection, especially where it is supposed to be most needed. The raison d’être of ISDS is gone.
Note alternatives exist.
Investors can still threaten with huge claims; the ruling may not sufficiently remove regulatory chill. Furthermore, not paying damages awards undermines international law. I wrote about these issues here (EN) and here (NL).
The following makes sense. Lenaerts:
“As a judicial body, the Court takes decisions on the basis of the law alone. Accordingly, nothing in Opinion 1/17 calls that political choice into question, a choice which, as you all know, still has to be confirmed through ratification by the EU and each one of its Member States.”
However, I do not agree with Lenaerts that "(…) ‘No one has won or lost’ in Opinion 1/17”. The Opinion undermines investor protection, international law and insufficiently protects against regulatory chill, while we really need our freedom to regulate.
The Court and its President are not straightforward on the implications of the Court’s Opinion. This would seem at odds with article 1 of the Treaty on European Union, our “constitution”:
“(…) This Treaty marks a new stage in the process of creating an ever closer union among the peoples of Europe, in which decisions are taken as openly as possible and as closely as possible to the citizen. (…)"
The Court and its President obfuscate what is really going on, and leave out the negative consequences. This is not “as openly as possible and as closely as possible to the citizen”. It rather contributes to a Byzantinization of the EU.
The best option we have is to reject ISDS in CETA, as it lost its raison d’être, while still being harmful.
